China ETFs hit by tightening fears

By John Spence

Chinese stocks were under pressure Thursday after the latest GDP and inflation numbers fed speculation Beijing will need to take additional policy measures to rein in growth such as raising rates.

The largest ETF tracking China, the $8.2 billion iShares FTSE China 25 Index Fund (FXI), was down about 2% in afternoon trade Thursday and was on track for its steepest loss in over a month.

FXI traded as low as $43.11 on Thursday, representing a 10% decline from the ETF’s 52-week high of $47.99 hit in early November. The technical picture isn’t pretty as a recent attempt to break above the 50-day moving average appears to be failing.

Weakness in Chinese stocks is a cause for concern given China’s role in the global economy, while FXI’s rapid decline in late 2007 presaged the meltdown in U.S. stocks during the credit crunch.

FXI is closely tied to the health of Chinese banks since its largest sector weighting is financials at 47.3%.

FXI has seen its assets decline as the ETF experienced net cash outflows of $2 billion in 2010, according to National Stock Exchange data.